“First there’s the guillotine stage – the sharp decline. That creates fear. Then there’s the feeling of being sandpapered to death. In place of fear come feelings of apathy, lack of interest, and finally, hopelessness.”
-Bob Farrell
I think by now most everyone has heard about the mortgage crisis and I also know that I've been writing about it since mid 2007. However, it bears mentioning that there are still too many people who are looking at the financial businesses for value, "bottoms" and "oversold." While I don't disagree with their perceived value of these businesses, I can only say that I don't understand what is on their books. Instead, I purchased puts on the financial index early last year because it was "cheap insurance."
Mr. Jensen from Third Avenue had this to say in the latest quarterly report, "In the wake of Citigroup's recent Abu Dhabi-led junk financing, and in the context of investment pain (patience?), a friend passed along an interesting graphic that reminded me of the virtues of patience...Citicorp's shares at the time Prince Alwaleed announced his $590 million investment in February 1991 for 15% of Citicorp. By year-end 1991, Citicorp's shares had declined more than 40% from their Ferbuary highs. Any investor who followed Alwaleed and remained patient was richly rewarded, however, as Citi's shares peaked at $178 per share in July 1998, before Citi's acquisition by Travelers in October that year, implying a rate of return of more than 10 times on the original investment."
I point this out because those who indeed choose to invest in financial businesses, have patience! Right now as the opening quote illustrates, the guillotine has fallen, sandpaper and apathy haven't happened. Please invest with great due diligence and enjoy the greater things in life. After a while, maybe I will be comfortable selling my insurance (gold, silver, puts) for cheap assets on the book.
We are looking at 20 years of expansion in an industry with simply too many people choosing one business major to another. This is not just a massive mortgage meltdown, it's a massive de-leverage for an industry with too much interest for too long.
I respect the sciences, the arts, and when I think about it, we haven't had a major surge in interest as majors for these unique studies. In my uranium post, I touched on this when I talked about the shortage in mining talent because of the low level of interest in Geology. These are the important facts to look at! I'm not a gloom and doom guy and I hope readers don't look at it this way.
To Touch on...
This past weekend I named a handful of businesses that I didn't hold a position in, but were interested in at the right price. Two have fallen sharply since being mentioned and I'd like to touch on that:
SNS- I knew this would fall because being a WSZL shareholder, I keep a close eye on Mr. Biglari's holdings. On Friday, SNS displayed their extreme ignorance in managing this business and that is why I stated: A company that I was about to leave out because it is one that I am closer to making a purchase in. I am an investor in WSZL and know Sardar is a better capital allocator than
SHLD- well they reported some not so decent numbers as has every other retailer and again we are entertained by the "Eddie Lampert just doesn't get it" rhetoric. I promised a more detailed writeup for SHLD this weekend, but I can't resist. If you make a decision to read what Mr. Lampert has written in his quarterly reports you will begin to understand: A)he doesn't care about same store sales, B) he doesn't care about top line growth, and C) he cares about profitability. So please, spare me the Mr. Lampert nonsense, the guy has a proven track record, amazingly smart people don't become dumb in one year. As promised, more on SHLD soon to come, I still haven't taken a position.
Good night and take care,
S.K.
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